Going off to college gives students a new level of independence and also a new level of financial responsibility.
Managing money is an important life skill for parents to teach their children before they attend college or even as they go off to college, said Kathy Prochaska-Cue, extension family economist at the University of Nebraska-Lincoln.
"Parents ought to talk to their new college student about money," she said. "But don't preach; talk to them and use some well-chosen words."
College debt is an important financial consideration.
Parents providing financial support for college students should keep in mind that their total monthly debt payments for mortgage, credit cards and loans should not be more than 35 percent of monthly gross income, Prochaska-Cue said. Parents should set a limit for the total debt they will assume for a child's education and discuss this with their child before college, she said.
For students looking to pay off their debt with a job after college, Prochaska-Cue said she encourages incoming freshmen to think about the total amount of debt they want to graduate with, so that they have a goal to keep their debt under control.
To estimate the maximum amount of affordable debt, parents and students need to find out the starting salary for the starting job the student is going to get. Instructions on how to find these are available in UNL NebGuide G2071, How Much College Debt is Too Much?.
"A good guideline is for loan payments to take only up to 10 percent of the monthly salary they anticipate," Prochaska-Cue said.
But with today's economy, she added, it's even harder for students to get a job, so they should minimize debt whenever possible. They should consider schools that provide the best financial aid packages and shop around for loans with the lowest interest rates, she said.
College students should use their loans only for necessary educational expenses, Prochaska-Cue said. This is known as "good" debt, because education is considered an investment in someone's future. But when students take on loans or credit card debt to pay for extras such as a nice car, an expensive TV or expensive clothes, they are taking on "bad" debt.
"It all boils down into thinking about the differences between wants and needs," Prochaska-Cue said. Needs are necessary items for school, such as textbooks and school supplies, whereas wants are extras such as a video game console and expensive clothes.
With credit card debt, it's a good idea for students to keep track of spending and not to exceed a certain amount each month. College students should not assume that just because lenders are willing to give them money that they can afford the loan, Prochaska-Cue said.
Setting up a budget or spending plan is a good way to help college students assess needs and wants and how long it will take to pay back debt, Prochaska-Cue said. Parents can help their college student to plan a budget and stick to it. It may be helpful to plan a budget on a semester-to-semester basis, she said, if financial aid comes in once a semester.
By listing their sources of income and expenses, college students can think about how much money they have, how much they can spend, and how much they need to put aside for emergencies, such as when their car breaks down, or to save for the future.
For more tips on budgeting, check out UNL NebGuide G2074, Budgeting: The Basics and Beyond for College Students.
If the parents are continuing to support the student, they need to have a conversation to set up the ground rules for spending money. For example, some parents may only want their child to use a credit card for emergencies, so they must clarify what counts as an emergency.
Even after parents go through all the necessary financial tips, college students may still make some money mistakes. Instead of being overly worried, parents should let their children know they will be open to communication even if their student makes a mistake, Prochaska-Cue said.
"Your child is going to be an adult, so you have to let them make the mistake to learn," she said. "In other words, don't be a helicopter parent."
Parents can find more tips for talking to their college student about money at UNL NebGuide G2073, Talking Money with Your New College Student. NebGuides are also available from local UNL Extension offices.
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